CHAPTER 4, 5, 6 - REVIEW
I. Choose ONE correct answer
1. Generally, MRS’s value:
a. Is constant
c. Gradually reduces
b. Gradually increases
d. Can not be defined
2. The average variable cost curve:
a. Slopes up
c. U-shaped
b. Slopes down
d. None
3. With available variable and fixed cost, which of the followings can be
defined?
a. Total average cost
b. Marginal cost
c. Average total cost
d. All
4. Choosing the best supplier in perfect competition market is:
a. Necessary
b. Not necessary
c. May be useful to some extent
d. None
5. A firm in perfect competition market will gain maximum profit
when:
a. Marginal cost equals to marginal revenue
b. Price equals to marginal cost
c. Marginal revenue equals to 0
d. None
6. Supply curve of a firm in perfect competition market:
a. Does not exist
b. Is upward sloping
c. Is a part of the marginal cost
d. Is the whole marginal cost
7. In comparison to the benefit of consumer in perfect competition
market, the benefit of consumer in monopoly market is:
a. Larger
b. Smaller
c. Equal
d. Can not be defined
II. Answer true or false with short explanation and use
diagram if necessary
1. Supply curve of a firm in competition market coincides with marginal
cost curve
2. The law of diminishing marginal product can be applied in both shortrun and long-run
3. Accounting cost is always bigger than economic cost
4. Fixed cost never changes
5. Average revenue always equals to price in all cases
6. To maximize profit, firm chooses quantity level that minimize its total
cost
7. The minimum value of total cost is fixed cost.
III. Exercises
1. A monopolist is facing with a demand curve:
P = 18 – 2Q
and total cost function: TC = Q2
a. State out P*, Q* and *MAX
b. Government imposes 3$/ unit tax on producer. What is new P**, Q**
and **MAX
c. Government imposes a fixed tax amount of 10$ on producer.
Compare P***, Q*** and ***MAX with P*, Q* and *MAX in
question a
d. Calculate the DWL caused by this monopolist
2. A perfectly competitive firm has a cost function: ($) AVC = 2q + 4.
At market price P = 24$, the firm loses 150$. Calculate this firm’s breakeven point./.